'Half' a house creates a whole set of problems

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DEAR BRUCE: Here is the age-old problem that I'm sure you have addressed before, but I don't remember now that I'm in this situation.

My mother passed away and left her house to my sister and me. My sister has been living in the house (rent free) for the last five years while my mother was in a nursing home. My sister wants to stay in the house. I live in another state and want to be bought out.

In two months, she has done nothing to look into getting the money to buy me out. I suspect this is because she has a poor credit rating and is in a huge amount of debt. She offered to pay me rent and set the amount, which I accepted in a verbal agreement. But the first check was two weeks late.

I don't want to be tied to this house, which is in disrepair. Plus, I am already paying a mortgage, taxes, etc., on my own home. I am retired and living on a fixed income that meets my expenses with enough left over to live the simple life I enjoy.

I've even toyed with the idea of taking money out of my IRA to buy her out and then selling the place. Is there anything I can do to get free of this? — M.F., via email

DEAR M.F.: You are absolutely correct! Leaving what is called "undivided interest" to siblings is a continuing problem. In other words, the house was left to the two of you, meaning you own the entire thing together, as contrasted with, let's say, an 8-acre piece of property where each side got 4 acres.

This is almost always a mistake. One person has money, one doesn't; one wants to sell, one doesn't, etc.

I think you can forget about your sister buying you out. Whether she would sell to you is a different matter. You might want to approach her with that. First of all, you will be obliged to get a valid appraisal to get some idea of what this place is worth in its current condition.

DEAR BRUCE: About three years ago, we were forced to have our 87-year-old mother move into an assisted-living facility. Since that time, her savings have been exhausted, and she went on Medicaid plus Medicare.

About 12 years ago, she sold her small house to me and my two siblings for a dollar. The contract had a life-interest clause. The house was vacant for about three years, so we sold it last fall.

It's tax time, and the lawyer sent us our 1099s. He also sent one to my mother for one-fourth of the proceeds and said she would have to include it on her income taxes.

How do we report this earning without having to reapply for Medicare? We know the money will go to the assisted-living facility, but we just don't want the hassle with the government. At present, her Social Security and pension (except for $80 a month) go toward her living arrangements. — David, via email

DEAR DAVID: See a professional, someone who deals regularly with tax matters and knows the code.

I am curious why the house was sold for $1. It seems to me that it's better to sell the house for a sum that would still get you under the income tax requirements at the time and also would increase the base when the house is ultimately sold.

Whether there is enough money here to create a taxable interest for your mother is yet another matter. It would depend on how much principal was given to each of you.

I am sure you can go to a computer and perhaps figure this out, but, in my opinion, a competent tax accountant is the only intelligent decision.